Net income (loss) of Pacific & Western Credit Corp. for the three months
ended July 31, 2013 was ($2.2 million) or ($0.07) per share (($0.07)
diluted) compared to ($2.6 million) or ($0.09) per share (($0.09)
diluted) for the previous quarter and ($614,000) or ($0.02) per share
(($0.02) diluted) for the same period a year ago. Prior to the
deduction of dividends on Class B Preferred Shares, which are recorded
as interest expense for accounting purposes, net income (loss) of the
Corporation for the current quarter was ($963,000) compared to ($1.3
million) for the previous quarter and $600,000 a year ago.

Net income (loss) of Pacific & Western Credit Corp. for the nine months
ended July 31, 2013 was ($5.9 million) or ($0.20) per share (($0.20)
diluted) compared to ($2.4 million) or ($0.09) per share (($0.09)
diluted) for the same period a year ago. Prior to the deduction of
dividends on Class B Preferred Shares, net income (loss) of the
Corporation for the nine months ended July 31, 2013 was ($2.2 million)
compared to $1.3 million for the same period a year ago.

Pacific & Western Bank of Canada

Net interest income and spread for Pacific & Western Bank of Canada (the
"Bank"), Pacific & Western Credit Corp.'s wholly-owned subsidiary, for
the three months ended July 31, 2013 increased to $6.7 million and
1.91% respectively from $6.1 million and 1.77% for the previous quarter
and from $5.1 million and 1.25% respectively for the same period a year
ago.

For the nine months ended July 31, 2013, net interest income and spread
increased to $18.8 million and 1.71% respectively from $14.1 million
and 1.24% a year ago.

Credit quality continues to remain strong with gross impaired loans at
July 31, 2013 totalling $1.8 million or 0.15% of total loans compared
to $1.7 million or 0.14% of total loans a year ago. Net impaired loans
totalled $93,000 at July 31, 2013 compared to $51,000 a year ago.

At July 31, 2013, the Bank's Common Equity Tier 1 (CET1) ratio was
10.52% compared to 10.34% at the end of the previous quarter.

Net income (loss) for the Bank for the three months ended July 31, 2013
was $878,000 compared to ($39,000) for the previous quarter and $1.8
million for the same period a year ago. Net income for the same period
a year ago included pre-tax gains from the sale of securities totalling
$3.0 million.

Net income for the Bank for the nine months ended July 31, 2013 was $2.0
million compared to $4.7 million for the same period a year ago. Net
income a year ago included pre-tax gains from the sales of securities
which totalled $10.1 million and net income for the current period
includes debt and other restructuring charges totalling $789,000.

PRESIDENT'S COMMENTS

I am pleased with the results of our third quarter. Our Bank's net
interest income continued to grow with net interest income of $6.7
million for the third quarter compared to $6.1 million earned in the
previous quarter and $5.1 million earned in the same quarter a year
ago. This increase can be mainly attributed to a significant increase
in spread, which improved by 53% over the same period last year to
1.91% this quarter. Credit quality continued to be outstanding with no
loans in arrears at the end of the quarter. Unlike last year, total
revenue for the current quarter was not bolstered by gains from the
sale of assets, but included restructuring charges relating to
reductions in staff. Although it is possible that our Bank may still
periodically realize gains from sales of assets, its primary source of
revenue is now derived from sustainable net interest income from its
growing loan and lease portfolio. Overall, our Bank's spread figures
have now returned to pre liquidity crisis levels and compare favourably
to the large banks.

Our three new programs continue to grow. Bulk financing assets
increased by 25% during the quarter to $172 million and 81% over last
year's balance. The loss incurred on our credit card program decreased
from $579,000 in the previous quarter to $187,000 this quarter. Our
trustee deposits initiative continues to gain acceptance as new
trustees throughout Canada are continuing to move their banking to us.
Overall, we are very pleased with the progress that we are making on
the bulk financing and trustee deposits programs, and are working with
our credit card partner to improve the profitability of that program.

On August 27th, we completed an Initial Public Offering and listed our
Bank on the TSX. This was a key step in the Bank's evolution,
providing it with direct access to the public markets. Our Bank raised
net proceeds of $6 million, increasing its CET1 capital to $123 million
and resulting in the Bank's capital ratios significantly exceeding the
industry average while providing ample capacity for growth.

With the completion of the IPO, the Bank's visibility and perception of
value should be significantly increased, which should be reflected in
PWC's share value. Additionally, PWC is now exploring other lending
and investing opportunities to diversify and develop additional revenue
sources.

These are exciting times for us shareholders. Our Bank has now been
reconfigured so that it is able to earn ever increasing sustainable
spread income, it has reduced its vulnerability to external factors and
is well capitalized to provide for profitable growth. PWC is also now
well positioned to pursue other lending and investing opportunities to
further enhance shareholder value.

FINANCIAL HIGHLIGHTS

(unaudited)

as at

as at

July 31

July 31

July 31

July 31

($CDN thousands except per share amounts )

2013

2012

2013

2012

Pacific & Western Bank of Canada

Balance Sheet Summary

Cash and securities

$

182,849

$

251,527

$

182,849

$

251,527

Total loans

1,193,561

1,255,595

1,193,561

1,255,595

Average loans

1,194,443

1,233,487

1,201,936

1,202,380

Total assets

1,407,342

1,538,769

1,407,342

1,538,769

Average assets

1,398,679

1,610,014

1,470,755

1,512,252

Deposits

1,201,593

1,323,494

1,201,593

1,323,494

Subordinated notes payable

20,297

49,773

20,297

49,773

Shareholder's equity

125,014

93,989

125,014

93,989

Capital ratios (2012 based on Basel II)

Assets-to-capital ratio

9.75

10.50

9.75

10.50

Common Equity Tier 1 capital

116,491

n/a

116,491

n/a

Risk-weighted assets

1,107,029

1,175,584

1,107,029

1,175,584

Common Equity Tier 1 ratio

10.52%

n/a

10.52%

n/a

Tier 1 risk-based capital ratio

10.52%

8.46%

10.52%

8.46%

Total risk-based capital ratio

12.14%

12.67%

12.14%

12.67%

for the three months ended

for the nine months ended

Results of operations

Net interest income

$

6,733

$

5,059

$

18,759

$

14,105

Spread

1.91%

1.25%

1.71%

1.24%

Other income

315

3,573

1,995

10,917

Debt and other restructuring costs

(287)

-

(789)

-

Provision for credit losses

154

249

399

433

Total revenue

6,607

8,383

19,566

24,589

Net income before income taxes

1,226

2,217

2,744

7,065

Net income

878

1,783

1,954

4,731

Return on average total assets

0.25%

0.44%

0.18%

0.42%

Gross impaired loans to total loans

0.15%

0.14%

0.15%

0.14%

Provision for credit losses as a % of average loans

0.01%

0.02%

0.03%

0.04%

Commercial Lending income before income taxes

$

1,413

$

3,015

$

4,002

$

9,284

Loan spread

2.23%

2.04%

2.21%

2.03%

Pacific & Western Credit Corp., (consolidated)

Results of operations

Net income of the Bank

$

878

$

1,783

$

1,954

$

4,731

Deduct interest expense on notes of the Corporation

(1,613)

(733)

(3,194)

(2,005)

Net non-interest expenses of the Corporation

159

4

225

(121)

Provision for income taxes

(387)

(454)

(1,160)

(1,341)

Net income (loss) before the following:

(963)

600

(2,175)

1,264

Interest expense relating to Class B Preferred Share dividends

(1,230)

(1,214)

(3,687)

(3,642)

Net loss of the Corporation available to common shareholders

$

(2,193)

$

(614)

$

(5,862)

$

(2,378)

Loss per common share:

Basic

$

(0.07)

$

(0.02)

$

(0.20)

$

(0.09)

Diluted

$

(0.07)

$

(0.02)

$

(0.20)

$

(0.09)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION

This management's discussion and analysis (MD&A) of operations and
financial condition for the third quarter of fiscal 2013, dated August
28, 2013, should be read in conjunction with the unaudited interim
consolidated financial statements for the period ended July 31, 2013,
included herein which have been prepared in accordance with
International Financial Reporting Standards (IFRS). This MD&A should
also be read in conjunction with the Corporation's MD&A and the audited
consolidated financial statements for the year ended October 31, 2012,
all of which are available on SEDAR at www.sedar.com. Except as discussed below, all other factors discussed and referred to
in the MD&A for the year ended October 31, 2012, remain substantially
unchanged.

Basis of Presentation

Non-GAAP and Additional GAAP Measures

Net Interest Income and Net Interest Margin or Spread

Most banks analyze profitability by net interest income (as presented in
the Consolidated Statements of Income (Loss)) and net interest margin
or spread. Net interest margin or spread is defined as net interest
income as a percentage of average total assets. Net interest margin or
spread does not have a standardized meaning prescribed by IFRS and,
therefore, may not be comparable to similar measures presented by other
financial institutions.

Total Revenue

An additional measure of profitability is total revenue which consists
of net interest income, other income, restructuring charges and
provisions for credit losses (as presented in the Consolidated
Statements of Income (Loss)).

Book Value Per Common Share

Book value per common share is defined as Shareholders' Equity less
amounts relating to preferred shares recorded in equity, divided by the
number of common shares outstanding.

Overview

Pacific & Western Credit Corp. (the `Corporation`) is a holding company
whose shares trade on the Toronto Stock Exchange. Its wholly-owned and
principal subsidiary is Pacific & Western Bank of Canada (the `Bank`)
which provides lending services to selected niche markets and operates
as a Schedule I bank under the Bank Act (Canada).

Pacific & Western Credit Corp.

Net income (loss) of the Corporation for the three months ending July
31, 2013 was ($2.2 million) or ($0.07) per share (($0.07) diluted)
compared to ($2.6 million) or ($0.09) per share (($0.09) diluted) for
the previous quarter and ($614,000) or ($0.02) per share (($0.02)
diluted) for the same period last year. Net income for the same period
a year ago included pre-tax gains from the sale of securities totalling
$3.0 million. Prior to the deduction of dividends on Class B Preferred
Shares, net income (loss) for the three months ending July 31, 2013 was
($963,000) compared to ($1.3 million) for the previous quarter and
$600,000 for the same period a year ago. These dividends are recorded
as interest expense in the consolidated financial statements as the
preferred shares carry certain redemption features and are classified
as preferred share liabilities on the Consolidated Balance Sheet.

Net income (loss) of Pacific & Western Credit Corp. for the nine months
ended July 31, 2013 was ($5.9 million) or ($0.20) per share (($0.20)
diluted) compared to ($2.4 million) or ($0.09) per share (($0.09)
diluted) for the same period a year ago. Net income for the same period
a year ago included pre-tax gains from the sale of securities totalling
$10.1 million. Prior to the deduction of dividends on Class B Preferred
Shares, which are recorded as interest expense for accounting purposes,
net income (loss) of the Corporation for the current quarter was ($2.2
million) compared to $1.3 million for the same period a year ago.

On January 28, 2013, the Corporation announced its plans for the Bank to
complete an Initial Public Offering (IPO) of its common shares. The
final prospectus was filed on August 20, 2013 and the Bank's common
shares were conditionally approved for listing on the Toronto Stock
Exchange (TSX). See Subsequent Event and Proposed Transactions for more
information.

On January 28, 2013 the Corporation also announced that it would be
seeking approval from its Series C Note holders to modify its Series C
Notes. At a Note holder meeting held on March 7, 2013, this approval
was received. This modification to the Series C Notes allows the
Corporation, at its option, at June 30, 2014, provided the Bank has
completed its IPO and the Bank's common shares have been listed on the
TSX, to satisfy all interest obligations of the Corporation's
outstanding Series C Notes either in cash or in-kind in the form of
common shares of the Bank held by the Corporation. It also modified the
Series C Note indenture to make, at the option of the holder, the
Series C Notes convertible into common shares of the Bank held by the
Corporation. See Subsequent Event and Proposed Transactions.

Pacific & Western Bank of Canada
Net income (loss) of the Bank for the three months ending July 31, 2013
was $878,000 compared to ($39,000) for the previous quarter and $1.8
million for the same period a year ago. Included in net income for the
same period a year ago were pre-tax gains of $3.0 million on the sale
of securities. There were no gains realized on the sale of securities
in the current quarter.

Net income of the Bank for the nine months ended July 31, 2013 was $2.0
million compared to $4.7 million for the same period a year ago.
Included in net income for the same period a year ago were pre-tax
gains of $10.1 million on the sale of securities. There were no gains
realized on the sale of securities in the current period. Included in
net income for the current period were debt and other restructuring
costs totalling $789,000 relating to the retirement of subordinated
notes payable to the parent company and severance costs incurred as a
result of reductions in staff complement.

Net interest income and spread for the three months ended July 31, 2013
increased to $6.7 million and 1.91% respectively from $6.1 million and
1.77% for the previous quarter and from $5.1 million and 1.25% for the
same period a year ago. For the nine months ended July 31, 2013, net
interest income and spread increased to $18.8 million and 1.71%
respectively from $14.1 million and 1.24% a year ago. Net interest
income and spread increased from previous periods due to a combination
of lower interest expense as a result of the repayment in March 2013 of
subordinated notes payable to the parent company and the booking of new
loans with larger spreads during the current periods.

At July 31, 2013, total assets of the Bank were $1.41 billion compared
to $1.39 billion at the end of the previous quarter and $1.54 billion a
year ago. The decrease in total assets from a year ago was due
primarily to a lower level of cash and securities held at the end of
the current quarter and a lower level of lending assets caused
primarily by loan sales over the past year. Cash and securities
decreased from the previous year due to a lower level of deposits
maturing in the succeeding months thus requiring a lower level of
liquid assets to fund their repayment.

Credit quality remains strong, with gross impaired loans totalling $1.8
million at July 31, 2013 compared to $1.7 million a year ago and net
impaired loans of $93,000 compared to $51,000 a year ago. At July 31,
2013, the ratio of gross impaired loans as a percentage of total loans
was 0.15% compared to 0.14% last year.

The Basel Committee on Banking Supervision published the Basel III rules
supporting more stringent global standards on capital adequacy and
liquidity (Basel III). The Office of the Superintendent of Financial
Institutions (OSFI) requires all Canadian banks to comply with the new
Basel III standards on an "all in" basis that became effective January
1, 2013 for purposes of determining its risk-based capital ratios.
Required minimum regulatory capital ratios are a 7.0% Common Equity
Tier 1 (CET1) capital ratio at January 1, 2013, and at January 1, 2014
an 8.5% Tier 1 capital ratio and 10.5% total capital, all of which
include a 2.50% capital conservation buffer.

At July 31, 2013, the Bank significantly exceeded the new CET1 capital
requirement of 7.0% with a ratio of 10.52%. In addition, its Tier 1
capital ratio was 10.52%; the total capital ratio was 12.14% and the
assets-to-capital ratio at July 31, 2013 was 9.75.

Total Revenue

Total revenue consists of net interest income, other income, debt and
restructuring charges and provisions for credit losses. For the three
months ended July 31, 2013 total revenue of the Bank was $6.6 million
compared to $5.7 million in the previous quarter and $8.4 million for
the same period last year. Total revenue decreased from a year ago due
primarily to gains totalling $3.0 million from the sale of securities
realized last year compared to $nil in the current period, with the
impact reduced by an increase of $1.7 million in net interest income in
the period. Compared to the previous quarter, total revenue of the Bank
increased due primarily to the growth in net interest income.

For the nine months ending July 31, 2013, total revenue of the Bank was
$19.6 million compared to $24.6 million a year ago with the decrease
due primarily to gains totalling $10.1 million from the sale of
securities in the same period a year ago compared to $nil in the
current period. This decrease was partially offset by an increase in
net interest income which grew to $18.8 million in the current period
from $14.1 million a year ago. In addition, included in total revenue
for the current period are restructuring charges totalling $789,000 of
which $384,000 was a result of the retirement of subordinated notes
payable to the parent company and $405,000 related to severance costs
incurred as a result of reductions in staff complement.

The provision for credit losses, which is also included in total
revenue, was a provision of $154,000 in the current quarter compared to
$266,000 for the previous quarter and a provision of $249,000 for the
same period a year ago. Included in the provision for credit losses in
the current quarter was an amount totalling $369,000 relating to credit
card receivables compared to $137,000 for the same period last year.
For the nine months ended July 31, 2013, the provision for credit
losses was $399,000 compared to $433,000 for the same period a year
ago. Included in the provision for credit losses in the current period
was an amount totalling $764,000 related to credit card receivables
compared to $257,000 for the same period last year.

Net Interest Income and Net Interest Margin or Spread

Net interest income of the Bank for the three months ended July 31, 2013
increased to $6.7 million from $6.1 million for the previous quarter
and from $5.1 million for the same period a year ago. These increases
were due primarily to loans that matured during the period being
replaced with loans with larger spreads and a decrease in interest
expense as a result of the repayment in March 2013 of subordinated
notes payable to the parent company. Net interest margin or spread for
the three months ended July 31, 2013 increased to 1.91% from 1.77% for
the previous quarter and from 1.25% last year due to the factors noted
above. On a year-to-date basis, net interest income of the Bank
increased to $18.8 million from $14.1 million a year ago and net
interest margin or spread increased to 1.71% from 1.24% a year ago due
to the factors noted previously.

Other Income

Other income of the Corporation for the three months ended July 31, 2013
was $315,000 compared to $400,000 for the previous quarter and $3.6
million for the same period a year ago. Other income for the current
quarter includes non-interest revenue of $306,000 from credit cards
compared to $261,000 for the previous quarter and $259,000 for the same
period a year ago. Other income for the same period last year included
gains of $3.0 million from the sale of securities held in the treasury
portfolio of the Bank.

On a year-to-date basis, other income of the Corporation totalled $2.0
million compared to $10.9 million a year ago with the difference due
primarily to gains totalling $10.1 million on the sale of securities
compared to $nil in the current period. In addition, gains from the
sale of loans totalled $1.0 million and are included in other income
for the current period compared to $nil a year ago and non-interest
revenue from credit cards for the current period totalled $824,000
compared to $375,000 for the same period a year ago. Non-interest
revenue from credit cards increased in the current period compared to
the same period last year due to increases in credit card receivable
balances and an additional two months of credit card activities as the
credit card program was launched on January 2, 2012.

Non-Interest Expenses

Non-interest expenses of the Corporation, including those relating to
credit card operations, totalled $5.2 million for the current quarter
compared to $5.8 million for the previous quarter and $6.2 million for
the same period a year ago. The decrease in non-interest expenses from
the previous periods was due primarily to a reduction in staff
complement, a reduction in costs to operate the credit card program and
timing of expenses. On a year-to-date basis, non-interest expenses of
the Corporation were $16.6 million for the current period compared to
$17.7 million for the same period last year with the decrease due to
the factors described above.

Income Taxes

The Corporation's statutory federal and provincial income tax rate and
that of the Bank is approximately 27%, similar to that of the previous
period. The effective rate is impacted by the tax benefit on operating
losses in the parent company not being recorded for accounting purposes
and certain items not being taxable or deductible for income tax
purposes. The provision for income taxes consists of the following
items:

for the three months ended

for the nine months ended

July 31

July 31

July 31

July 31

2013

2012

2013

2012

Income tax on earnings of the Bank

$

348

$

-

$

790

$

-

Income tax on dividends paid by the Corporation

387

454

1,160

1,341

Tax on gain on sale of securities

-

810

-

2,710

Substantively enacted rate changes

-

(376)

-

(376)

$

735

$

888

$

1,950

$

3,675

For the current quarter, the provision for income taxes was $735,000
compared to $888,000 for the same period a year ago and includes an
income tax provision of $387,000 in the parent company relating to
income tax on dividends paid by the Corporation on its Class B
Preferred Shares. The income tax provision for the same quarter last
year included a provision of $810,000 relating to gains on the sale of
securities and a recovery of $376,000 resulting from a substantively
enacted rate change that occurred during the quarter last year. On a
year-to-date basis, the provision for income taxes was $2.0 million
compared to $3.7 million for the same period last year. This decrease
was due primarily to an income tax provision of $2.7 million on the
sale of securities a year ago compared to $nil in the current period.

At July 31, 2013, the Bank has a deferred income tax asset of $8.3
million compared to $11.0 million a year ago with the decrease due to
the tax effect of operating results over the past year, the recording
of an income tax adjustment totalling $1.9 million in the previous year
less tax rate adjustments recorded last year. The deferred income tax
asset is primarily a result of income tax losses totalling
approximately $42 million from previous periods, the benefit of which
was recorded at the time. The income tax loss carry-forwards in the
Bank are not scheduled to begin expiring until 2027 if unutilized. In
addition, the Corporation has income tax loss carry-forwards which
total approximately $39 million, the benefit of which has not been
recorded. These loss carry-forwards are scheduled to begin expiring in
2014 if unutilized.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of the net income (loss) for
the period and other comprehensive income (loss) which consists
primarily of unrealized gains and losses on available-for-sale
securities. Comprehensive loss for the three months ended July 31, 2013
was $2.2 million compared to $2.6 million for the previous quarter and
$3.5 million a year ago. The change from a year ago is due to the net
loss in the current period being greater than that of a year ago and
amounts of unrealized gains on available-for-sale securities recorded
in comprehensive income (loss) in previous years being reversed through
other comprehensive income (loss) when realized last year. On a
year-to-date basis, comprehensive loss was $5.9 million compared to
$9.7 million for the same period a year ago with the change due to same
factors described previously.

Segment Analysis

Commercial Lending

The commercial lending segment consists of the operations of the Bank
related to issuing mortgages, loans and leases. The commercial lending
segment is supported by deposit taking, treasury and administrative
activities of the Bank. For the three months ended July 31, 2013, net
income of the commercial lending segment totalled $1.1 million compared
to $540,000 for the previous quarter and $2.6 million a year ago with
the difference due primarily to gains from the sale of securities a
year ago which totalled $3.0 million compared to $nil in the current
quarter. On a year-to-date basis, net income of the commercial lending
segment totalled $3.2 million compared to $7.0 million for the same
period a year ago with the difference due primarily to gains from the
sale of securities which totalled $10.1 million last year.

Net interest income from commercial lending for the three months ended
July 31, 2013, totalled $6.4 million compared to $5.8 million for the
previous quarter and $5.0 million last year with the growth due
primarily to increased yields on new loans and a decrease in interest
expense. For the nine months ended July 31, 2013, net interest income
from commercial lending totalled $17.9 million compared to $14.0
million for the same period a year ago.

Credit quality relating to the commercial lending segment remains strong
with provisions (recoveries) for credit losses for the three months
ended July 31, 2013 totalling ($215,000) compared to a provision of
$36,000 for the previous quarter and a provision of $112,000 for the
same period last year. For the nine months ended July 31, 2013, the
provision for credit losses was a recovery of ($365,000) compared to a
provision of $176,000 for the same period a year ago. Provisions
(recoveries) for credit losses were lower in the current periods as a
result of decreases in lending assets and maturities in the existing
loan portfolio over the past year.

For the three months ended July 31, 2013, non-interest expenses for the
commercial lending segment totalled $4.9 million compared to $4.9
million for the previous quarter and $5.2 million a year ago. On a
year-to-date basis, non-interest expenses totalled $14.7 million
compared to $15.1 million for the same period a year ago.

Credit Card Operations

This segment consists of income and expenses related to the Bank's
private label credit card program which was launched on January 2,
2012. As at July 31, 2013, credit card receivables totalled $26.3
million compared to $23.8 million at the end of the previous quarter
and $17.8 million a year ago. For the three months ended July 31, 2013,
costs to operate the credit card program exceeded revenues by $187,000
compared to $579,000 for the previous quarter and $798,000 for the same
period a year ago. For the nine months ended July 31, 2013, costs to
operate the credit program exceeded revenues by $1.3 million compared
to $2.2 million for the same period a year ago.

Net interest income from credit card operations for the three months
ending July 31, 2013, totalled $370,000 compared to $269,000 for the
previous quarter and $69,000 a year ago. For the nine months ended July
31, 2013, net interest income from credit card operations totalled
$858,000 compared to $63,000 for the same period a year ago. Net
interest income from credit card operations continues to be impacted by
incentive programs with low or no interest rates used to generate the
issue of new cards.

For the three months ended July 31, 2013, non-interest revenue from
credit card operations in the form of credit card fees totalled
$306,000 compared to $261,000 for the previous quarter and $259,000 a
year ago. For the nine months ended July 31, 2013, non-interest revenue
from credit card operations totalled $823,000 compared to $375,000 for
the same period a year ago.

For the three months ending July 31, 2013, the Bank recorded a provision
for credit losses of $369,000 relating to credit card receivables
compared to $230,000 for the previous quarter and $137,000 a year ago.
These provisions consist of adjustments to the collective allowance and
write-offs of credit card balances. For the nine months ended July 31,
2013, the provision for credit card losses totalled $764,000 compared
to $257,000 for the same period last year. At July 31, 2013, the
collective allowance relating to credit card receivables totalled
$744,000 compared to $250,000 a year ago.

Non-interest expenses relating to credit card operations totalled
$494,000 for the current quarter compared to $879,000 for the previous
quarter and $989,000 for the same period last year. On a year-to-date
basis, non-interest expenses totalled $2.2 million compared to $2.4
million last year. Non-interest expenses relating to credit cards
decreased in the current periods as a result of a decrease in staff
complement and an effort to reduce non-variable costs. These expenses
consist of salaries and benefits, expenses for activities carried out
by external parties to administer processing of the credit cards and
marketing and promotional costs and general and administrative
expenses.

Corporate Head Office Operations

This segment consists of income and expenses related to the operations
of the parent company and typically consists of general and
administrative activities as well as interest expense on notes payable
and preferred share liabilities.

Consolidated Balance Sheet

Total assets of the Corporation at July 31, 2013, were $1.40 billion
compared to $1.39 billion at the end of the previous quarter and $1.54
billion a year ago with the change due primarily to decreases in cash
and securities and a decrease in lending assets. Cash and securities
decreased from a year ago due primarily to a lower level of deposits
maturing in the coming months compared to a year ago requiring less
cash to fund the maturities. Lending assets decreased from a year ago
primarily as a result of loans sold over the past year.

Cash and Securities

Cash and cash equivalents consist of deposits with Canadian chartered
banks, government treasury bills and bankers acceptances with less than
ninety days to maturity from the date of acquisition. Securities in the
Corporation's treasury portfolio typically consist of Government of
Canada and Canadian provincial and municipal bonds, bankers'
acceptances and corporate debt. Cash and securities, which are held
primarily for liquidity purposes, totalled $185.3 million or 13.2% of
total assets compared to $169.5 million or 12.2% of total assets at the
end of the previous quarter and $253.2 million or 16.5% of total assets
a year ago. The decrease in cash and securities as a percentage of
total assets from a year ago was a result of the Corporation no longer
having to hold the same levels of cash as deposit maturities in the
coming months are less than those maturing a year ago. In addition,
since July 31, 2012, the Corporation shifted its strategy to hold
larger amounts of cash and cash equivalents as a proportion of its
treasury portfolio rather than holding securities that were not as
liquid.

At July 31, 2013, net unrealized gains in the Corporation's
available-for-sale securities portfolio were $38,000 compared to net
unrealized gains of $70,000 a year ago. In addition there was an
unrealized loss of $559,000 at July 31, 2013 compared to an unrealized
loss of $545,000 at the end of the previous quarter relating to a
security the Corporation classifies as held-to-maturity. This
unrealized loss was due to changes in interest rates rather than due to
changes in credit risk and management is of the opinion that no
impairment charge is required at this time.

Loans

Loans totalled $1.19 billion at July 31, 2013, compared to $1.20 billion
at the end of the previous quarter and $1.26 billion a year ago with
the decrease from a year ago due primarily to the sale of loans which
occurred over the past year. The Corporation does not expect to see
significant loan sales during the remainder of the year.

At July 31, 2013, the balances of individual loan categories remained
relatively consistent with those from a year ago, taking into account
loan sales. Government financings have declined from a year ago due to
market conditions and the Corporation shifting its focus to corporate
lending opportunities, primarily through its bulk financing initiative
as described below.

The Corporation's bulk financing portfolio showed significant growth
totalling $171.6 million at July 31, 2013 compared to $137.8 million at
the end of the previous quarter, an increase of 25%, and $94.8 million
a year ago, an increase of 81%. The bulk financing program continues to
be a key initiative for the Corporation and is expected to be the
primary area of growth in the Corporation's lending portfolio. The
Corporation continues to enter into agreements with vendors for the
program and expects to see continued growth in the coming months.

Overall, new lending for the quarter totalled $151.8 million compared to
$117.9 million for the previous quarter and $166.0 million a year ago.
Loan repayments for the quarter totalled $153.6 million compared to
$93.6 million for the previous quarter and $135.0 million a year ago.
On a year-to-date basis, new lending totalled $405.8 million compared
to loan repayments of $421.4 million. Loan repayments for the current
nine month period include loan sales totalling $37 million.

Credit Quality

The Corporation has maintained its high credit quality and strong
underwriting standards and requires minimal provisions for credit
losses. Gross impaired loans at July 31, 2013, totalled $1.8 million or
0.15% of total loans compared to $1.7 million or 0.14% of total loans
at the end of the previous quarter and $1.7 million or 0.14% of total
loans a year ago. Provisions for credit losses in the current quarter
totalled $154,000 compared to $266,000 in the previous quarter and
$249,000 a year ago. For the nine months ended July 31, 2013,
provisions for credit losses totalled $399,000 compared to $433,000 for
the same period a year ago. The change in the provision for credit
losses from a year ago was due to additional provisions and write-offs
related to credit card receivables.

At July 31, 2013, the Corporation's collective allowance totalled $3.2
million virtually unchanged from a year ago. Included in the
Corporation's collective allowance at July 31, 2013 was $744,000
relating to credit card receivables compared to $250,000 a year
ago. The Corporation's individual allowance for credit losses totalled
$1.7 million compared to $1.7 million a year ago and net impaired loans
at July 31, 2013 totalled $93,000 compared to $51,000 a year ago. Based
on results from ongoing stress testing of the loan portfolio under
various scenarios, and the secured nature of the existing loan
portfolio, the Corporation is of the view that any credit losses which
exist but cannot be specifically identified at this time are adequately
provided for.

Other Assets

Other assets totalled $25.5 million at July 31, 2013 compared to $24.8
million at the end of the previous quarter and $30.4 million a year
ago. Included in other assets is the deferred income tax asset of the
Bank of $8.3 million compared to $11.0 million last year and capital
assets and prepaid expenses of $14.2 million at July 31, 2013 compared
to $19.4 million last year.

Deposits and Other Liabilities

Deposits are used as a primary source of financing growth in assets and
are raised primarily through a well established and well diversified
deposit broker network across Canada. Deposits raised and deposit
levels are highly sensitive to interest rates being offered by the Bank
for new deposits. Deposits at July 31, 2013 totalled $1.20 billion
compared to $1.19 billion at the end of the previous quarter and $1.32
billion a year ago, and consist primarily of guaranteed investment
certificates. The decrease in total deposits from a year ago is due to
the decrease in total assets, specifically the level of cash and
securities. Of the total amount of deposits, $38.2 million or
approximately 3.2% of total deposits at the end of the current quarter
were in the form of demand deposits compared to $34.9 million or
approximately 2.6% of total deposits a year ago, with the remaining
deposits having fixed terms.

In order to diversify its sources of deposits and reduce its cost of new
deposits, the Corporation has identified another source, that being
deposits of trustees in the bankruptcy industry. The Corporation has
developed new banking software to serve this deposit market and
launched this product in April 2012. These services are now being
offered to trustees in the bankruptcy industry across Canada and at
July 31, 2013, deposits from this source totalled $14.7 million.

An additional source of financing growth in assets and a source of
liquidity is the use of margin lines and securities sold under
repurchase agreements. From time to time, the Corporation uses these
sources of short-term financing when the cost of borrowing is less than
the interest rates that would have to be paid on new deposits. At July
31, 2013, the Corporation did not have any amounts outstanding relating
to margin lines or securities sold under repurchase agreements nor were
any amounts outstanding a year ago.

Other liabilities consist primarily of accounts payable and accruals and
the fair value of derivatives. At July 31, 2013, other liabilities
totalled $18.7 million compared to $16.2 million at the end of the
previous quarter and $30.6 million a year ago with the change due to a
decrease in the fair value of derivatives as interest rate swap
contracts were unwound during the first quarter. See Interest Rate Risk
Management in this Management's Discussion and Analysis for more
information.

Securitization Liabilities

The Corporation has securitization liabilities outstanding which relate
to amounts payable to counterparties for cash received upon initiation
of securitization transactions. At July 31, 2013, the amount of
securitization liabilities totalled $43.5 million compared to $43.5
million a year ago. The Corporation has not entered into any
securitization transactions in the current fiscal year nor does it
expect to in the remainder of the year.

The amounts payable to counterparties bear interest at rates ranging
from 1.97% - 3.95% and mature between 2016 and 2020. Securitized
insured mortgages with a carrying value of $41.0 million are pledged as
collateral for these liabilities.

Notes Payable

Notes payable, net of issue costs, totalled $82.7 million at July 31,
2013 compared to $80.0 million a year ago with the increase due
primarily to additional notes issued during the past year by the
Corporation. Excluding issue costs, notes payable consist of Series C
Notes totalling $61.7 million maturing in 2018, a five year note in the
amount of $4.0 million bearing interest at 6% and a short term note in
the amount of $200,000. The Series C Notes bear interest at 9.00% per
annum.

In addition, the Corporation has outstanding subordinated notes
totalling $21.5 million issued by the Bank to an external party. These
subordinated notes, of which $11.5 million are callable, bear interest
at rates ranging from 8.00% to 11.00% and mature between 2019 and 2021.

Preferred Share Liabilities

At July 31, 2013, the Corporation had 1,909,458 Class B Preferred Shares
outstanding with a total value of $47.7 million before deducting issue
and conversion costs. As these Class B Preferred Shares carry certain
redemption features and are convertible into common shares of the
Corporation, an amount of $42.3 million, net of issue and conversion
costs has been classified on the Corporation's Consolidated Balance
Sheet as Preferred Share Liabilities. In addition, an amount of $3.2
million, net of income taxes and issue costs, has been included in
Shareholders' Equity on the Corporation's Consolidated Balance Sheet.
As the Class B Preferred Shares must be redeemed by the Corporation in
2019 for $47.7 million, the preferred share liability amount of $42.3
million will be adjusted over the remaining term to redemption until
the amount is equal to the estimated redemption amount. The increase is
included in interest expense in the Consolidated Statement of Income
(Loss), calculated using an effective interest rate of 11.8%.

Shareholders' Equity

At July 31, 2013, shareholders' equity was $15.7 million compared to
$16.3 million at the end of previous quarter and $19.9 million a year
ago with the decrease due primarily to operating losses. Common shares
outstanding at July 31, 2013 totalled 31,308,091 compared to 28,077,872
a year ago with the change due to 1,928,565 common shares issued since
last year as part of the dividends on the Class B Preferred Shares and
1,301,654 common shares issued under private placements. Common share
options outstanding totalled 517,683 at the end of the quarter compared
to 1,163,033 a year ago with the change due to the issue of 50,000
common share options and 695,350 common share options which expired
during the past year.

At July 31, 2013, there were 314,572 Class A Preferred Shares
outstanding, unchanged from a year ago and 1,909,458 Class B Preferred
Shares outstanding, also unchanged from a year ago. In November 2012,
6,202,370 warrants to acquire common shares and common share warrants
expired.

The Corporation's book value per common share at July 31, 2013 was $0.36
compared to $0.40 at the end of the previous quarter and $0.52 a year
ago. Assuming the outstanding Class B Preferred Shares are converted
into common shares on the basis of $5.00 per share, the Corporation's
book value per common share at July 31, 2013 would be $1.39 per share.

Reduction of Stated Capital

On May 30, 2012, at a special meeting of the shareholders of the
Corporation, approval was given authorizing the reduction of the stated
capital of the common shares of the Corporation by $50,472,000 and
correspondingly reducing retained earnings (deficit) by the same
amount. There was no impact on total shareholders' equity.

Updated Share Information

As at August 28, 2013, there were no changes since July 31, 2013 in the
number of outstanding common shares, common share options and Class A
or Class B Preferred Shares.

Off-Balance Sheet Arrangements

As at July 31, 2013, the Corporation does not have any significant
off-balance sheet arrangements other than loan commitments and letters
of credit resulting from normal course business activities. See Note 12
to the unaudited interim consolidated financial statements.

Related Party Transactions

The Corporation's Board of Directors and Senior Executive Officers
represent key management personnel. Other than key management
personnel, the Corporation has no other related parties for which there
were transactions or outstanding balances during the period. See Note
13 to the unaudited interim consolidated financial statements for
details on related party transactions and balances.

Subsequent Event and Proposed Transactions

On August 20, 2013, the Bank filed its final prospectus and on August
27, 2013 its common shares began trading on the Toronto Stock Exchange.
Under the terms of the IPO, 400,000 common shares of the Bank were
issued at a price of $7.25 per share before commissions and other
expenses of the offering. In addition, under a secondary offering, the
Corporation sold 1,100,000 of its common shares of the Bank at $7.25
per share before commissions. From the net proceeds the Corporation
purchased an additional 620,206 shares of the Bank for $4,496,494. As
a result of these transactions, the Corporation's ownership interest in
the Bank decreased from 100% to 92%.

As part of the IPO, the syndicate of agents have been granted an
Over-Allotment Option exercisable in whole or in part for a period of
30 days following the closing of the IPO, to purchase up to an
additional 225,000 Common Shares from the Bank at a price of $7.25 per
Common Share.

As noted previously, on March 7, 2013, approval was received from the
Corporation's Series C Note holders to modify its Series C Notes. This
modification to the Series C Notes allows the Corporation at its
option, at June 30, 2014, provided the Bank has completed its IPO and
the Bank's common shares have been listed on the TSX, to satisfy all
interest obligations of the Corporation's outstanding Series C Notes
either in cash or in-kind in the form of common shares of the Bank held
by the Corporation. It also modified the Series C Note indenture to
make, at the option of the holder, the Series C Notes convertible into
common shares of the Bank held by the Corporation. Effective August 27,
2013, as a result of the completion of the Bank's IPO and the listing
of the Bank's common shares, the Series C Notes were modified. At this
point in time, the Corporation has not determined whether the
modification of the Series C notes constitutes an extinguishment and
reissuance of the debt for accounting purposes. Extinguishment of the
debt could result in $3.5 million of unamortized issue costs and
discounts related to the Series C Notes being written off. This
potential non-cash adjustment would not have an impact on the equity or
regulatory capital of the Bank.

Risk Management

The risk management policies and procedures of the Corporation are
provided in its annual MD&A for the year ended October 31, 2012, and
are found on pages 47 to 52 of the Corporation's 2012 Annual Report.

Capital Management and Capital Resources

The Basel Committee on Banking Supervision has published the Basel III
rules supporting more stringent global standards on capital adequacy
and liquidity (Basel III). Significant changes under Basel III that are
most relevant to the Bank include:

Increased focus on tangible common equity.

All forms of non-common equity such as the Bank's conventional
subordinated notes must be non-viability contingent capital (NVCC)
compliant. NVCC compliant means the subordinated notes must include a
clause that would require conversion to common equity in the event that
OSFI deems the institution to be insolvent or a government is ready to
inject a "bail out" payment.

Changes in the risk-weighting of certain assets.

Additional capital buffers.

New requirements for levels of liquidity and new liquidity measurements.

OSFI requires that all Canadian banks must comply with the Basel III
standards on an "all-in" basis that became effective January 1, 2013
for purposes of determining its risk-based capital ratios. Required
minimum regulatory capital ratios are a 7.0% Common Equity Tier 1
(CET1) capital ratio and effective January 1, 2014, an 8.5% Tier 1
capital ratio and 10.5% total capital ratio, all of which include a
2.5% capital conservation buffer. The Basel III rules provide for
"transitional" adjustments whereby certain aspects of the new rules
will be phased in between 2013 and 2019. The only available transition
allowed by OSFI for capital ratios is related to the 10 year phase out
of non-qualifying capital instruments. However, OSFI has allowed
Canadian banks to calculate their asset to capital ratios on a
transitional basis between 2013 and 2019.

Under the Basel III standards, total capital of the Bank totalled $134.4
million at July 31, 2013 compared to $133.1 million at the end of the
previous quarter. The Bank exceeded the new capital requirements with a
CET1 ratio of 10.52% compared to 10.34% at the end of the previous
quarter. In addition, the Bank's total capital ratio was 12.14% at July
31, 2013 compared to 11.94% at the end of the previous quarter and its
assets-to-capital ratio at July 31, 2013 was 9.75 compared to 9.69 at
the end of the previous quarter.

See note 14 to the interim consolidated financial statements for more
information regarding capital management.

The operations of the Corporation are not dependent upon significant
amounts of capital assets to generate revenue. Currently, the
Corporation does not have any commitments for capital expenditures or
for significant additions to its level of capital assets.

Interest Rate Risk Management

The Bank is subject to interest rate risk which is the risk that a
movement in interest rates could negatively impact spread, net interest
income and the economic value of assets, liabilities and shareholder's
equity. The following table provides the duration difference between
the Bank's assets and liabilities and the potential after-tax impact of
a 100 basis point shift in interest rates on the Bank's earnings during
a 12 month period and the potential after-tax impact of a 100 basis
point shift in interest rates on the Bank's shareholder's equity over a
60 month period if no remedial actions are taken.

July 31, 2013

July 31, 2012

Increase 100
bps

Decrease 100
bps

Increase 100
bps

Decrease 100
bps

Sensitivity of projected net interest

income during a 12 month period

$

5,049

$

(4,997)

$

5,975

$

(5,919)

Sensitivity of projected net interest

income during a 60 month period

$

2,906

$

(2,890)

$

9,364

$

(9,983)

Duration difference between assets and liabilities (months)

2.9

3.7

The change in exposure to a decrease of 100 basis points in interest
rates in a 60 month period from a year ago was due primarily to the
change in the composition of the Bank's treasury portfolio through the
sale of longer term securities over the past year with the proceeds
being invested in cash or short term liquid securities as well as the
Corporation unwinding interest rate swaps during the first quarter of
fiscal 2013.

The decision to unwind the swap contracts was made as the Bank decided
to use on-balance sheet strategies to manage its interest rate risk
rather than interest rate swaps. These strategies include the raising
of longer term deposits and reducing the duration of its assets
primarily by maintaining higher levels of shorter duration and highly
liquid treasury assets. Another factor in unwinding its interest rate
swap contracts was the decision to eliminate the basis risk that
resulted from the decrease in the correlation between the yield on
banker's acceptances and the GIC's the Bank issues that occurred during
the global liquidity crisis.

Liquidity

Pacific & Western Credit Corp., on a non-consolidated basis, has
sufficient funds on hand to meet its cash obligations for the next 12
months. These obligations relate primarily to payments of interest on
notes payable and the expected cash portion of dividends on Class B
Preferred Shares. The funding for the obligations beyond the next 12
months is expected to come primarily from cash and proceeds from sales
of securities.

The unaudited Consolidated Statement of Cash Flows for the Corporation
for the nine months ended July 31, 2013 shows cash used from operations
in excess of cash provided by operations of $116.4 million compared to
cash used of $62.2 million for the nine months ended July 31, 2012. The
Corporation's operating cash flow is primarily affected by the change
in the balance of its deposits (a positive change in deposits has a
positive impact on cash flow and a negative change in deposits has a
negative impact on cash flow) as compared to the change in the balance
of its loans (a positive change in loans has a negative impact on cash
flow and a negative change in loans has a positive impact on cash
flow). Based on factors such as liquidity requirements and
opportunities for investment in loans and securities, the Corporation
may manage the amount of deposits it receives and loans it funds in
ways that result in the balances of these items giving rise to either
negative or positive cash flow from operations. The Corporation will
continue to fund its operations and meet contractual obligations as
they become due from cash on hand and from managing the amount of
deposits it receives as compared to the amount of loans it funds. See
Note 12 to the unaudited interim consolidated financial statements

Contractual Obligations

Contractual obligations of the Corporation as disclosed in its MD&A and
audited consolidated financial statements for the year ended October
31, 2012, have not changed significantly during the nine months ended
July 31, 2013.

Summary of Quarterly Results

(thousands of dollars except per share amounts)

2013

2012

2011

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Results of operations:

Total interest income

$

15,246

$

14,779

$

15,705

$

15,264

$

15,356

$

14,928

$

15,021

$

14,798

Interest expense

11,356

11,145

11,735

12,069

12,244

12,581

12,022

12,374

Net interest income

3,890

3,634

3,970

3,555

3,112

2,347

2,999

2,424

Provision for (recovery of) credit losses

154

266

(21)

28

249

-

184

118

Other income

315

400

1,280

2,370

3,573

3,939

3,405

8,649

Restructuring costs

(287)

(118)

-

-

-

-

-

-

Total revenue *

3,764

3,650

5,271

5,897

6,436

6,286

6,220

10,955

Non-interest expenses

5,222

5,828

5,547

6,426

6,162

5,724

5,759

6,680

Income (loss) before income taxes

(1,458)

(2,178)

(276)

(529)

274

562

461

4,275

Income tax provision (recovery)

735

393

822

2,165

888

1,473

1,314

5,558

Net income (loss)

$

(2,193)

$

(2,571)

$

(1,098)

$

(2,694)

$

(614)

$

(911)

$

(853)

$

(1,283)

Earnings (loss) per share

- basic

$

(0.07)

$

(0.09)

$

(0.04)

$

(0.10)

$

(0.02)

$

(0.03)

$

(0.03)

$

(0.05)

- diluted

$

(0.07)

$

(0.09)

$

(0.04)

$

(0.10)

$

(0.02)

$

(0.03)

$

(0.03)

$

(0.05)

* Total revenue is an Additional GAAP measure-See Basis of Presentation

The financial results of the Corporation for each of the last eight
quarters are summarized above. The Corporation's results, particularly
total interest income and net interest income, are comparable between
quarters and over the past eight quarters reflect the increase in
lending assets, adjusted for loan sales in the first quarter of 2013,
with some seasonality occurring during the spring and summer months due
to increases in residential construction lending. Additional factors in
the increase in net interest income were higher yields on loans booked
and a decrease in the cost of deposits over the past year.

Other income during the quarters shows variability due to the level of
gains realized in previous quarters on the sale of securities and in
the fourth quarter of 2012 and first quarter of 2013 from the sale of
loans. The provisions for credit losses recorded in the last two
quarters were due primarily to write-offs and adjustments in the
collective allowance relating to credit card receivables.

Non-interest expenses have decreased over the last eight quarters as a
result of a strategy to reduce overhead expenses, a reduction in staff
complement and the timing of expenses. Non-interest expenses increased
in the fourth quarter of 2012 as a result of expenses being incurred
relating to professional and consulting fees and increased costs
relating to credit card operations.

The provision for income taxes in each of the first three quarters of
2013 reflects the effective statutory income tax rate of the Bank
applied to earnings and includes income taxes on dividends paid by the
Corporation on its Class B Preferred Shares. The provision for income
taxes in the fourth quarter of 2012 included an income tax adjustment
of $1.9 million relating to a change in the estimate of previously
recognized deferred income tax assets. The income tax provision in the
third quarter of 2012 decreased from previous quarters as a result of a
recovery for income taxes relating to a change in corporate income tax
rates substantively enacted during that quarter.

Significant Accounting Policies and Use of Estimates and Judgments

Significant accounting policies are detailed in Note 3 of the
Corporation's 2012 Audited Consolidated Financial Statements. There has
been no change in accounting policies nor any significant new policies
adopted during the current period.

In preparing the consolidated financial statements, management has
exercised judgment and developed estimates in applying accounting
policies and generating reported amounts of assets and liabilities at
the date of the financial statements and income and expenses during the
reporting periods. Areas where significant judgment was applied or
estimates were developed include assessments of fair value and
impairments of financial instruments, the calculation of the allowance
for credit losses, and the measurement of deferred income taxes.

It is reasonably possible, on the basis of existing knowledge, that
actual results may vary from that expected in the generation of these
estimates. This could result in material adjustments to the carrying
amounts of assets and/or liabilities affected in the future.

Estimates and their underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are applied prospectively
once they are recognized.

The policies discussed below are considered particularly significant as
they require management to make estimates or judgements, some of which
may relate to matters that are inherently uncertain.

Financial Instruments

All financial assets are classified as one of the following:
held-to-maturity, loans and receivables, financial assets recorded at
fair value through profit or loss or available-for-sale. All financial
liabilities are classified as fair value through profit or loss or
other liabilities. Financial assets and liabilities recorded at fair
value through profit or loss are measured at fair value with gains and
losses recognized in net income. Financial assets held-to-maturity,
loans and receivables and financial liabilities other than those held
for trading, are measured at amortized cost based on the effective
interest method. Available-for-sale instruments are measured at fair
value with gains and losses, net of tax, recognized in other
comprehensive income.

Estimates of fair value are developed using a variety of valuation
methods and assumptions. The Corporation follows a fair value hierarchy
to categorize the inputs used to measure fair value for its financial
instruments. The fair value hierarchy is based on quoted prices in
active markets (Level 1), valuation techniques using inputs other than
quoted prices but with observable market data (Level 2), or valuation
techniques using inputs that are not based on observable market data
(Level 3). Valuation techniques may require the use of inputs,
transaction values derived from models and input assumptions sourced
from pricing services. Valuation inputs are either observable or
unobservable. The Corporation looks to external readily observable
market inputs when available and may include certain prices and rates
for shorter-dated Canadian yield curves and bankers acceptances.
Unobservable inputs may include credit spreads, probability of default
and recovery rates.

Fair value measurements that fall into Level 2 of the fair value
hierarchy comprise derivatives and Canadian municipal and corporate
bonds that are classified as available-for-sale. Fair value of
derivatives is estimated using a discounted cash flow valuation
technique based on observable market data including interest rates, the
Corporation's and the counterparty's credit spreads, corresponding
market interest rate volatility levels and other market-based pricing
factors. For Canadian municipal and corporate bonds, fair value
measurement is primarily based on quotes received from brokers that
represent transaction prices in markets for identical instruments.

Securities

The Corporation holds securities primarily for liquidity purposes with
the intention of holding the securities to maturity or until market
conditions render alternative investments more attractive. Settlement
date accounting is used for all securities transactions.

At the end of each reporting period, the Corporation assesses whether or
not there is any objective evidence to suggest that a security may be
impaired. Objective evidence of impairment results from one or more
events that occur after the initial recognition of the security which
has an impact that can be reliably estimated on the estimated future
cash flows of the security such as financial difficulty of the issuer.
An impairment loss is recognized for an equity instrument if the
decline in fair value is significant or prolonged, as such
circumstances provide objective evidence of impairment.

Impairment losses on a held-to-maturity security are recognized in
income and loss in the period they are identified. When there is
objective evidence of impairment of an available-for-sale security, the
cumulative loss that has been recorded in accumulated other
comprehensive income is reclassified to income or loss. For
available-for-sale debt securities, if in a subsequent period the
impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was first recognized, then
the previously recognized impairment loss is adjusted through income or
loss to reflect the net recoverable amount of the impaired security.
No adjustments of impairment losses are recognized for
available-for-sale equity securities.

Loans

Loans are initially measured at fair value plus incremental direct
transaction costs. Loans are subsequently measured at amortized cost,
net of allowance for credit losses, using the effective interest
method. On a monthly basis, the Corporation assesses whether or not
there is any objective evidence to suggest that the carrying value of
the loans may be impaired. Impairment assessments are facilitated
through the identification of loss events and assessments of their
impact on the estimated future cash flows of the loans.

A loan is classified as impaired when, in management's opinion, there
has been deterioration in credit quality to the extent that there is no
longer reasonable assurance as to the timely collection of the full
amount of principal and interest. Loans, except credit cards, where
interest or principal is contractually past due 90 days are
automatically recognized as impaired, unless management determines that
the loan is fully secured, in the process of collection and the
collection efforts are reasonably expected to result in either
repayment of the loan or restoring it to current status. All loans,
except credit cards, are classified as impaired when interest or
principal is past due 180 days, except for loans guaranteed or insured
by the Canadian government, provinces, territories, or a Canadian
government agency, which are classified as impaired when interest or
principal is contractually 365 days in arrears. Credit card
receivables are written off when payments are 180 days past due, or
upon receipt of a bankruptcy notification.

As loans are classified as loans and receivables and measured at
amortized cost, an impairment loss is measured as the difference
between the carrying amount and the present value of future cash flows
discounted using the effective interest rate computed at initial
recognition, if future cash flows can be reasonably estimated. When
the amounts and timing of cash flows cannot be reasonably estimated,
the carrying amount of the loan is reduced to its estimated net
realizable value based on either:

(i) the fair value of any security underlying the loan, net of expected
costs of realization,

or,

(ii) observable market prices for the loan.

Impairment losses are recognized in income or loss. If, in a subsequent
period, the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was first
recognized, then a recovery of a portion or all of the previously
recognized impairment loss is adjusted through income or loss to
reflect the net recoverable amount of the impaired loan.

Real estate held for resale is recorded at the lower of cost and fair
value, less costs to sell.

Allowance for Credit Losses

The Corporation maintains an allowance for credit losses which, in
management's opinion, is adequate to absorb all credit related losses
in its loan portfolio. The allowance for credit losses consists of both
individual and collective allowances and is reviewed on a monthly
basis. The allowance is presented as a component of loans on the
Corporation's consolidated balance sheets.

The Corporation considers evidence of impairment for loans at both an
individual asset and collective level. All individually significant
loans are assessed for impairment first. All individually significant
loans found not to be specifically impaired and all loans which are not
individually significant are then collectively assessed for impairment
by aggregating them into groups with similar credit risk
characteristics.

The collective impairment allowance is determined by reviewing factors
including historical loss experience in portfolios of similar credit
risk characteristics, current portfolio credit quality trends,
probability of default and recovery rates, and business and economic
conditions. Historical loss experience is adjusted based on current
observable data to reflect effects of current conditions that did not
affect the period in which the historical loss experience is based. The
collective impairment allowance may also be adjusted by management
using its judgment taking into account other observable and
unobservable factors.

Corporate Income Taxes

Current income taxes are calculated based on taxable income at the
reporting period end. Taxable income differs from accounting income
because of differences in the inclusion and deductibility of certain
components of income which are established by Canadian taxation
authorities. Current income taxes are measured at the amount expected
to be recovered or paid using statutory tax rates at the reporting
period end.

The Corporation follows the asset and liability method of accounting for
deferred income taxes. Deferred income tax assets and liabilities
arise from temporary differences between financial statement carrying
values and the respective tax base of those assets and liabilities.
Deferred income tax assets and liabilities are measured using enacted
or substantively enacted tax rates expected to apply to taxable income
in the years when temporary differences are expected to be recovered or
settled.

Deferred income tax assets are recognized in the Corporation's
consolidated financial statements to the extent that it is probable
that the Corporation will have sufficient taxable income to enable the
benefit of the deferred income tax asset to be realized. Unrecognized
deferred income tax assets are reassessed for recoverability at each
reporting period end

The realization of the deferred income tax asset is dependent upon the
Bank being able to generate taxable income during the carry-forward
period sufficient to offset the income tax losses and deductible
temporary timing differences. While management is of the opinion that
it is probable that the Bank will be able to realize the deferred
income tax asset, there is no guarantee the Bank will be able to
generate sufficient taxable income during the carry-forward period.
The realization of the deferred income tax asset is dependent upon the
Bank being able to generate taxable income in future years sufficient
to offset the income tax losses.

Future Change in Accounting Policies

IFRS 9: Financial instruments (IFRS 9)

In November 2009, the IASB issued IFRS 9 as the first phase of an
ongoing project to replace IAS 39. This first issuance of IFRS 9
introduced new requirements for classifying and measuring financial
assets. IFRS 9 was then re-issued in October 2010, incorporating new
requirements for the accounting of financial liabilities, and carrying
over from IAS 39 the requirements for de-recognition of financial
assets and financial liabilities. The mandatory effective date for the
adoption of IFRS 9 was set for annual periods beginning on or after
January 1, 2015, with earlier application permitted. In July 2013, the
IASB deferred the mandatory effective date for the adoption of IFRS 9
to a date yet to be determined and to allow entities to early adopt
only the own credit requirement in IFRS 9. The IASB continues to
deliberate on the content of IFRS 9 and intends to expand the existing
standard by adding new requirements for the impairment of financial
assets measured at amortized cost and hedge accounting. On completion
of these various projects, IFRS 9 will represent a complete replacement
of IAS 39.

The most significant changes expected under IFRS 9 relate to decreases
in the classification categories available for financial instruments, a
requirement that debt instruments meet a business model and cash flow
characteristic test before being eligible for measurement at amortized
cost, and a requirement that changes in the fair value of equity
instruments be reported in profit or loss (unless an irrevocable
election is made at initial recognition to recognize such changes in
other comprehensive income). Management has performed preliminary
evaluations of the impact of IFRS 9, however the impact on the
Corporation's Consolidated Financial Statements is not determinable at
this time as it is dependent upon the nature of financial instruments
held by the Corporation when IFRS 9 becomes effective. The Corporation
is choosing not to early adopt IFRS 9.

Controls and Procedures

During the most recent interim period, there have been no changes in the
Corporation's policies and procedures and other processes that comprise
its internal control over financial reporting, that have materially
affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.

Forward-Looking Statements

The statements in this management's discussion and analysis that relate
to the future are forward-looking statements. By their very nature,
forward-looking statements involve inherent risks and uncertainties,
both general and specific, many of which are out of our control. Risks
exist that predictions, forecasts, projections and other
forward-looking statements will not be achieved. Readers are cautioned
not to place undue reliance on these forward-looking statements as a
number of important factors could cause actual results to differ
materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements. These factors
include, but are not limited to, the strength of the Canadian economy
in general and the strength of the local economies within Canada in
which we conduct operations; the effects of changes in monetary and
fiscal policy, including changes in interest rate policies of the Bank
of Canada; the effects of competition in the markets in which we
operate; inflation; capital market fluctuations; the timely development
and introduction of new products in receptive markets; the impact of
changes in the laws and regulations regulating financial services;
changes in tax laws; technological changes; unexpected judicial or
regulatory proceedings; unexpected changes in consumer spending and
savings habits; and our anticipation of and success in managing the
risks implicated by the foregoing. For a detailed discussion of certain
key factors that may affect our future results, please see page 52 of
our 2012 Annual Report.

The foregoing list of important factors is not exhaustive. When relying
on forward-looking statements to make decisions, investors and others
should carefully consider the foregoing factors and other uncertainties
and potential events. The forward-looking information contained in the
management's discussion and analysis is presented to assist our
shareholders in understanding our financial position and may not be
appropriate for any other purposes. Except as required by securities
law, we do not undertake to update any forward-looking statement that
is contained in this management's discussion and analysis or made from
time to time by the Corporation or on its behalf.

Pacific & Western Credit Corp. (the "Corporation"), is a holding company
whose shares trade on the Toronto Stock Exchange. It is incorporated
and domiciled in Canada, and maintains its registered office at Suite
2002, 140 Fullarton Street, London, Ontario, Canada, N6A 5P2.

The Corporation's wholly-owned and principal subsidiary is Pacific &
Western Bank of Canada ("PWB" or the "Bank") which operates as a
Schedule I bank under the Bank Act (Canada) and is regulated by the Office of the Superintendent of
Financial Institutions (OSFI). Pacific & Western Bank of Canada is
involved in the business of providing financial solutions to clients in
selected niche markets.

2.Basis of preparation:

a) Statement of compliance

These interim Consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB) and have
been prepared in accordance with International Accounting Standard
(IAS) 34 - Interim Financial Reporting and do not include all of the information required for full annual
financial statements. These interim Consolidated Financial Statements should be read in
conjunction with the Corporation's audited Consolidated Financial
Statements for the year ended October 31, 2012.

The interim Consolidated Financial Statements for the three and nine
months ended July 31, 2013 and 2012 were approved by the Board of
Directors on August 28, 2013.

b) Basis of measurement:

These interim Consolidated Financial Statements have been prepared on
the historical cost basis except for securities designated as
available-for-sale, loans in a hedging relationship, derivative
liabilities and stock-based compensation that are measured at fair
value in the Consolidated Balance Sheets.

c) Functional and presentation currency

These interimConsolidated Financial Statements are presented in Canadian dollars
which is the Corporation's functional currency. Except as indicated,
the financial information presented has been rounded to the nearest
thousand.

d) Use of estimates and judgments

In preparing these interimConsolidated Financial Statements, management has exercised judgment and
developed estimates in applying accounting policies and generating
reported amounts of assets and liabilities at the date of the financial
statements and income and expenses during the reporting periods. Areas
where significant judgment was applied or estimates were developed
include the calculation of the allowance for credit losses, assessments
of fair value and impairments of financial instruments, and the
measurement of deferred income taxes.

It is reasonably possible, on the basis of existing knowledge, that
actual results may vary from that expected in the generation of these
estimates. This could result in material adjustments to the carrying
amounts of assets and/or liabilities affected in the future.

Estimates and their underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are applied prospectively once
they are recognized.

3. Significant accounting policies:

The accounting policies applied by the Corporation in these interim
Consolidated Financial Statements are the same as those applied by the
Corporation as at and for the year ended October 31, 2012 and are
detailed in Note 3 of the Corporation's 2012 Audited Consolidated
Financial Statements. There have been no changes in accounting policies
nor any significant new policies adopted during the current period.

4.Securities:

Portfolio analysis:

July 31

October 31

July 31

2013

2012

2012

Available-for-sale securities

Securities issued or guaranteed by:

Canadian federal government

$

28,360

$

76,841

$

30,003

Canadian provincial governments

18,609

48,526

9,939

Canadian municipal governments

965

1,581

1,648

Corporate debt

25,329

25,012

853

Total available-for-sale securities

$

73,263

$

151,960

$

42,443

Held-to-maturity security

Corporate debt

$

15,216

$

15,267

$

15,284

Total securities

$

88,479

$

167,227

$

57,727

5. Loans:

a) Portfolio analysis:

July 31

October 31

July 31

2013

2012

2012

Residential mortgages

Insured

$

24,921

$

35,966

$

36,451

Uninsured

247,403

230,129

235,329

Securitized mortgages

41,245

41,894

42,100

Government financing

143,419

172,326

185,968

Corporate loans

616,553

630,738

644,970

Corporate leases

90,433

71,131

87,958

Other loans

3,869

5,080

5,097

Credit card receivables

26,226

23,397

17,820

1,194,069

1,210,661

1,255,693

Allowance for credit losses:

Collective

(3,235)

(3,283)

(3,182)

Individual

(1,662)

(1,579)

(1,672)

(4,897)

(4,862)

(4,854)

1,189,172

1,205,799

1,250,839

Accrued interest

4,389

4,512

4,756

Total loans, net of allowance for credit losses

$

1,193,561

$

1,210,311

$

1,255,595

The collective allowance for credit losses relates to the following loan
portfolios:

July 31

October 31

July 31

2013

2012

2012

Residential mortgages

$

564

$

600

$

530

Corporate and government loans

1,919

2,307

2,372

Other loans

8

24

30

Credit card receivables

744

352

250

$

3,235

$

3,283

$

3,182

The Corporation holds collateral against the majority of its loans in
the form of mortgage interests over property, other registered
securities over assets and guarantees. Estimates of fair value are
based on the nature of the underlying collateral. For mortgages secured
by real estate, the value of collateral is determined at the time of
borrowing by an appraisal. For loans secured by equipment, the value of
collateral is assigned by the nature of the underlying equipment held.

b) Allowance for credit losses:

The allowance for credit losses results from the following:

July 31

July 31

2013

2012

For the three months ended

Collective

Individual

Total
Allowance

Total
Allowance

Balance, beginning of the period

$

3,302

$

1,622

$

4,924

$

4,612

Provision for credit losses

114

40

154

249

Recoveries (write-offs)

(181)

-

(181)

(7)

Balance, end of the period

$

3,235

$

1,662

$

4,897

$

4,854

July 31

July 31

2013

2012

For the nine months ended

Collective

Individual

Total
Allowance

Total
Allowance

Balance, beginning of the period

$

3,283

$

1,579

$

4,862

$

4,387

Provision for credit losses

282

117

399

433

Recoveries (write-offs)

(330)

(34)

(364)

34

Balance, end of the period

$

3,235

$

1,662

$

4,897

$

4,854

c) Impaired loans:

July 31, 2013

Gross
impaired

Individual
allowance

Net impaired

Residential mortgages

$

1,749

$

1,662

$

87

Other loans

6

-

6

$

1,755

$

1,662

$

93

July 31, 2012

Gross
impaired

Individual
allowance

Net impaired

Residential mortgages

$

1,695

$

1,672

$

23

Other loans

28

-

28

$

1,723

$

1,672

$

51

Impaired loans at July 31, 2013 include foreclosed real estate held for
sale with a gross carrying value of $111,000 (2012 - $159,000) and a
related allowance of $111,000 (2012 - $120,000). Real estate held for
sale is measured at the lower of cost and fair value, less costs to
sell.

Interest income recognized on impaired loans for the three and nine
months ended July 31, 2013 was $40,000 (2012 - $38,000) and $117,000
(2012 - $111,000) respectively. An individual allowance has been
recognized on the impaired loans to reflect the estimated recoverable
amounts for impaired loans.

At July 31, 2013, loans, other than credit card receivables, past due
but not impaired, totalled $nil (2012 - $nil). At July 31, 2013, credit
card receivables overdue by one day or more but not impaired totalled
$2,080,000 (2012 - $849,000).

Ten year term, unsecured, $11.5 million callable, subordinated
notes payable by the Bank to a third party, maturing between
2019 and 2021, net of issue costs of $1,203 (October 31, 2012 -
$1,302, July 31, 2012 - $1,333), effective interest of 10.92%

20,297

22,198

22,167

Notes payable, unsecured, effective interest of 6.05%

4,200

2,200

200

$

82,653

$

82,172

$

80,020

7. Securitization liabilities:

Securitization liabilities include amounts payable to counterparties for
cash received upon initiation of securitization transactions, accrued
interest on amounts payable to counterparties, and the unamortized
balance of deferred costs and discounts which arose upon initiation of
the securitization transactions.

The amounts payable to counterparties bear interest at rates ranging
from 1.97% - 3.95% and mature between 2016 and 2020. Securitized
insured mortgages with a carrying value of $41,035,000 (2012 -
$41,837,000) are pledged as collateral for these liabilities.

8.Preferred share liabilities:

At July 31, 2013, the Corporation has outstanding 1,909,458 (2012 -
1,909,458) Class B Preferred Shares with a total face value of $47.7
million (October 31, 2012 - $47.7 million, July 31, 2012 - $47.7
million) less issue costs of $2.1 million (October 31, 2012 - $2.3
million, July 31, 2012 - $2.4 million). As these Class B Preferred
Shares carry certain redemption features and are convertible into
common shares of the Corporation, an amount of $42.3 million (October
31, 2012 - $41.8 million, July 31, 2012 - $41.7 million), net of issue
costs, has been classified on the Corporation's Consolidated Balance
Sheets as a preferred share liability. In addition, an amount of $3.2
million (October 31, 2012 - $3.2 million, July 31, 2012 - $3.2 million)
representing the equity element of the Class B Preferred Shares, net of
issue costs, has been classified in share capital on the Consolidated
Balance Sheets.

As the preferred shares must be redeemed by the Corporation in 2019 for
approximately $47.7 million, the preferred share liability amount of
$42.3 million (October 31, 2012 - $41.8 million, July 31, 2012 - $41.7
million) is being adjusted over the remaining term to redemption, until
the amount is equal to the estimated redemption amount. The increase
is included in interest expense in the Consolidated Statement of Income
(Loss) calculated using the effective interest rate of 11.8%.

9.Share capital:

Stock Options

Common
shares
outstanding

Number

Weighted-
average
exercise
price

Outstanding, October 31, 2012

28,522,491

1,163,033

$

4.77

Granted

-

50,000

1.26

Issued for cash proceeds

1,301,654

-

-

Issued pursuant to Class B Preferred Share dividend

1,483,946

-

-

Expired

-

(695,350)

2.99

Outstanding, July 31, 2013

31,308,091

517,683

$

6.82

At July 31, 2013, there were 314,572 (2012 - 314,572) Class A Preferred
Shares outstanding and 1,909,458 (2012 - 1,909,458) Class B Preferred
Shares outstanding. In November 2012, 6,202,370 warrants to acquire
common shares and common share warrants expired.

The Corporation recognized compensation expense relating to the
estimated fair value of stock options granted for the three and nine
months ended July 31, 2013 of $7,000 (2012 - $6,000) and $28,000 (2012
- $30,000) respectively. During the nine months ended July 31, 2013,
50,000 options were granted to an officer who is a member of the
Corporation's key management personnel. These options are exercisable
into common shares at $1.26 per share and expire in February, 2023. The
fair value of the options was estimated using the Black-Scholes option
pricing model based on the following assumptions: (i) risk-free
interest rate of 1.53%, (ii) expected option life of 60 months and
(iii) expected volatility of 65.45%. The forfeiture rate for these
options was estimated at 0%. The fair value of options granted was
estimated at $0.70 per option. No additional options were issued during
the three months ended July 31, 2013.

During the nine months ended July 31, 2012, 50,000 options were granted
to an officer who is a member of the Corporation's key management
personnel. These options are exercisable into common shares at $1.90
per share and expire in January, 2022. The fair value of the options
was estimated using the Black-Scholes option pricing model based on the
following assumptions: (i) risk-free interest rate of 1.31%, (ii)
expected option life of 60 months and (iii) expected volatility of
57.71%. The forfeiture rate for these options was estimated at 0%. The
fair value of options granted was estimated at $0.95 per option. No
additional options were issued during the three months ended July 31,
2012.

During the three months ended July 31, 2013, the Corporation issued nil
DSU's (2012 - nil) to its directors, with a total of 144,131 DSU's
(2012 - 128,574) issued for the nine months ended July 31, 2013. The
amounts recorded in the Consolidated Statement of Income (Loss)
relating to DSU's for the three and nine months ended July 31, 2013 was
$nil (2012 - $12,000) and $139,000 expense (2012 - $225,000)
respectively. At July 31, 2013 there were 443,587 (2012 - 299,456)
DSU's outstanding.

On May 30, 2012, at a special meeting of the shareholders of the
Corporation, approval was given authorizing the reduction of the stated
capital of the common shares of the Corporation by $50,472,000 and
correspondingly reducing retained earnings (deficit) by the same
amount. There was no impact on total shareholders' equity.

10.Other income:

for the three months ended

for the nine months ended

July 31

July 31

July 31

July 31

2013

2012

2013

2012

Gain on sale of securities

$

-

$

2,998

$

-

$

10,141

Gain on sale of loans

-

-

1,009

-

Credit card non-interest revenue

306

259

823

375

Other income

9

316

163

305

Mark-to-market adjustment for derivatives

-

-

-

96

$

315

$

3,573

$

1,995

$

10,917

11. Income taxes:

The Corporation's statutory federal and provincial income tax rate is
approximately 27%, similar to that of the previous period. The
effective rate is impacted by the tax benefit on operating losses in
the parent company not being recorded for accounting purposes and
certain items not being taxable or deductible for income tax purposes.
The provision for income taxes consists of the following items:

for the three months ended

for the nine months ended

July 31

July 31

July 31

July 31

2013

2012

2013

2012

Income tax on earnings of the Bank

$

348

$

-

$

790

$

-

Income tax on dividends paid by the Corporation

387

454

1,160

1,341

Tax on gain on sale of securities

-

810

-

2,710

Substantively enacted rate changes

-

(376)

-

(376)

$

735

$

888

$

1,950

$

3,675

12. Commitments and contingencies:

The amount of credit related commitments represents the maximum amount
of additional credit that the Corporation could be obligated to
extend. Under certain circumstances, the Corporation may cancel loan
commitments at its option. The amount with respect to the letters of
credit are not necessarily indicative of credit risk as many of these
arrangements are contracted for a limited period of usually less than
one year and will expire or terminate without being drawn upon.

July 31

July 31

2013

2012

Loan commitments

$

129,009

$

216,184

Undrawn credit card lines

139,481

92,845

Letters of credit

20,529

26,434

$

289,019

$

335,463

In the ordinary course of business, cash and securities are pledged
against liabilities and off-balance sheet items. Details of assets
pledged are as follows:

July 31

July 31

2013

2012

Collateral related to derivative transactions

$

3,964

$

16,213

Collateral related to letters of credit

9,298

9,245

$

13,262

$

25,458

13. Related party transactions:

The Corporation's Board of Directors and Senior Executive Officers
represent key management personnel. Other than key management
personnel, the Corporation has no other related parties for which there
were transactions or outstanding balances during the period.

The Corporation issues both mortgages and personal loans to employees
and Senior Executive Officers. At July 31, 2013 amounts due from Senior
Executive Officers totalled $725,000 (2012 - $961,000) and are
unsecured.

The interest rates charged on these loans are similar to those charged
in an arms-length transaction. Interest income earned on the above
loans for the three and nine months ended July 31, 2013 was $9,000
(2012 - $10,000) and $28,000 (2012 - $30,000) respectively. There was
no provision for credit losses related to loans issued to key
management personnel for the three and nine months ended July 31, 2013
and 2012.

14.Capital management:

a) Overview:

The Corporation's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain future
development of the business. The impact of the level of capital on
shareholders' return is also important and the Corporation recognizes
the need to maintain a balance between the higher returns that might be
possible with greater leverage and the advantages and security afforded
by a sound capital position.

The Corporation's primary subsidiary is Pacific & Western Bank of
Canada, (the "Bank") and as a result, the following discussion on
capital management is with respect to the capital of the Bank. The
Bank operates as a bank under the Bank Act (Canada) and is regulated by the Office of the Superintendent of
Financial Institutions Canada (OSFI). OSFI sets and monitors capital
requirements for the Bank.

Capital is managed in accordance with policies and plans that are
regularly reviewed and approved by the Board of Directors and take into
account forecasted capital needs and conditions in financial markets.

The goal is to maintain adequate regulatory capital to be considered
well capitalized, protect consumer deposits and provide capacity for
internally generated growth and strategic opportunities that do not
otherwise require accessing the public capital markets, all the while
providing a satisfactory return to shareholders. The Bank's regulatory
capital is comprised of share capital, retained earnings and unrealized
gains and losses on available-for-sale securities (Common Equity Tier 1
capital) and the face value of subordinated notes (Tier 2 capital).

The Bank monitors its capital adequacy and related capital ratios on a
daily basis and has policies setting internal maximum and minimum
amounts for its capital ratios. These capital ratios consist of the
assets-to-capital multiple and the risk-based capital ratios.

During the period ended July 31, 2013 there were no material changes in
the Bank's management of capital.

b) Risk-Based Capital Ratio:

The Basel Committee on Banking Supervision has published the Basel III
rules supporting more stringent global standards on capital adequacy
and liquidity (Basel III).

OSFI requires that all Canadian banks must comply with the Basel III
standards on an "all-in" basis that became effective January 1, 2013
for purposes of determining its risk-based capital ratios. The required
minimum regulatory capital ratios are a 7.0% Common Equity Tier 1
(CET1) capital ratio and effective January 1, 2014, an 8.5% Tier 1
capital ratio and 10.5% total capital ratio, all of which include a
2.50% capital conservation buffer. The Basel III rules provide for
"transitional" adjustments whereby certain aspects of the new rules
will be phased in between 2013 and 2019. The only available transition
allowed by OSFI for capital ratios is related to the 10 year phase out
of non-qualifying capital instruments. However, OSFI has allowed
Canadian banks to calculate their asset to capital ratios on a
transitional basis between 2013 and 2019.

OSFI also requires banks to measure capital adequacy in accordance with
guidelines for determining risk adjusted capital and risk-weighted
assets including off-balance sheet credit instruments as specified in
the Basel III regulations. Based on the deemed credit risk for each
type of asset, assets held by the Bank are assigned a weighting of 0%
to 150% to determine the risk-based capital ratio.

The Bank's risk-based capital ratios are calculated as follows:

July 31, 2013

"All-in"

"Transitional"

Common Equity Tier 1 (CET1) capital

Directly issued qualifying common share capital

$

133,965

$

133,965

Retained earnings (deficit)

(8,979)

(8,979)

Accumulated other comprehensive income

28

28

CET1 before regulatory adjustments

125,014

125,014

Regulatory adjustments applied to CET1

(8,523)

-

Total Common Equity Tier 1 capital

$

116,491

$

125,014

Additional Tier 1 capital

Directly issued qualifying Additional Tier 1 instruments

-

-

Total Tier 1 capital

$

116,491

$

125,014

Tier 2 capital

Directly issued capital instruments subject to phase out from Tier 2

$

21,500

$

21,500

Tier 2 capital before regulatory adjustments

21,500

21,500

Regulatory adjustments applied to Tier 2

(3,545)

-

Total Tier 2 capital

$

17,955

$

21,500

Total capital

$

134,446

$

146,514

Total risk-weighted assets

$

1,107,029

$

1,119,096

Capital ratios

CET1 Ratio

10.52%

11.17%

Tier 1 Capital Ratio

10.52%

11.17%

Total Capital Ratio

12.14%

13.09%

c) Assets-to-Capital Multiple:

The Bank's growth in total assets is governed by a permitted
assets-to-capital multiple which is prescribed by OSFI and is defined
as the ratio of the total assets of the Bank to its regulatory capital.
The Bank's assets-to-capital multiple is calculated as follows:

July 31

2013

Total assets (on and off-balance sheet)

$

1,427,871

Capital

Common shares

$

133,965

Retained earnings (deficit)

(8,979)

Accumulated other comprehensive income

28

Subordinated notes (leverageable amount)

21,500

Total regulatory capital

$

146,514

Assets-to-capital ratio

9.75

The Bank was in compliance with the assets-to-capital multiple
prescribed by OSFI throughout the current periods.

15.Interest rate position:

The Bank is subject to interest rate risk which is the risk that a
movement in interest rates could negatively impact spread, net interest
income and the economic value of assets, liabilities and shareholder's
equity. The following table provides the duration difference between
the Bank's assets and liabilities and the potential after-tax impact of
a 100 basis point shift in interest rates on the Bank's earnings during
a 12 month period and the potential after-tax impact of a 100 basis
point shift in interest rates on the Bank's shareholder's equity over a
60 month period if no remedial actions are taken.

July 31, 2013

July 31, 2012

Increase 100
bps

Decrease 100
bps

Increase 100
bps

Decrease 100
bps

Sensitivity of projected net interest

income during a 12 month period

$

5,049

$

(4,997)

$

5,975

$

(5,919)

Sensitivity of projected net interest

income during a 60 month period

$

2,906

$

(2,890)

$

9,364

$

(9,983)

Duration difference between assets and

liabilities (months)

2.9

3.7

16. Segmented information:

The Corporation determines its operating segments based on the different
business activities of its component operations. The Corporation has
identified three distinct operating segments: commercial lending,
credit card lending and corporate head office operations.

The commercial lending segment consists of the operations of the Bank
related to issuing loans and leases and participating in securitization
arrangements. The commercial lending segment is supported by deposit
taking, and treasury and administrative activities. The credit card
lending segment consists of the operations of the Bank related to its
private label credit card program. The corporate head office
operations segment consists of operations of the parent company, which
are not directly related to the operations of the Bank.

Operating segment financial results are based on internal financial
reporting documents which are provided to the Corporation's chief
decision makers. The financial results for all segments are presented
on a consolidated basis. Transactions between segments have been
eliminated.

The following table details financial results for the Corporation by
operating segment:

The following table presents summary financial information of the Bank:

Consolidated balance sheets

July 31

October 31

July 31

2013

2012

2012

Cash and cash equivalents

$

94,370

$

129,466

$

193,800

Securities

88,479

167,227

57,727

Loans, net of allowance for credit losses

1,193,561

1,210,311

1,255,595

Other assets

30,932

27,164

31,647

$

1,407,342

$

1,534,168

$

1,538,769

Deposits

$

1,201,593

$

1,317,298

$

1,323,494

Subordinated notes payable

20,297

49,815

49,773

Securitization liabilities

43,511

43,356

43,458

Other liabilities

16,927

30,595

28,055

1,282,328

1,441,064

1,444,780

Shareholder's equity

125,014

93,104

93,989

$

1,407,342

$

1,534,168

$

1,538,769

Consolidated statements of income

for the three months ended

for the nine months ended

July 31

July 31

July 31

July 31

2013

2012

2013

2012

Interest income

$

15,242

$

15,350

$

45,713

$

45,282

Interest expense

8,509

10,291

26,954

31,177

Net interest income

6,733

5,059

18,759

14,105

Other income

315

3,573

1,995

10,917

Debt and other restructuring costs

(287)

-

(789)

-

Net interest income and other income

6,761

8,632

19,965

25,022

Provision for credit losses

154

249

399

433

Net interest and other income after

provision for credit losses

6,607

8,383

19,566

24,589

Non-interest expenses

5,381

6,166

16,822

17,524

Income before income taxes

1,226

2,217

2,744

7,065

Income taxes

348

434

790

2,334

Net income

$

878

$

1,783

$

1,954

$

4,731

18. Subsequent event:

On August 20, 2013, the Bank filed its final prospectus and on August
27, 2013 its common shares began trading on the Toronto Stock Exchange.
Under the terms of the IPO, 400,000 common shares of the Bank were
issued at a price of $7.25 per share before commissions and other
expenses of the offering. In addition, under a secondary offering, the
Corporation sold 1,100,000 of its common shares of the Bank at $7.25
per share before commissions. From the net proceeds the Corporation
purchased an additional 620,206 shares of the Bank for $4,496,494. As
a result of these transactions, the Corporation's ownership interest in
the Bank decreased from 100% to 92%.

As part of the IPO, the syndicate of agents have been granted an
Over-Allotment Option exercisable in whole or in part for a period of
30 days following the closing of the IPO, to purchase up to an
additional 225,000 Common Shares from the Bank at a price of $7.25 per
Common Share.

As noted previously, on March 7, 2013, approval was received from the
Corporation's Series C Note holders to modify its Series C Notes. This
modification to the Series C Notes allows the Corporation at its
option, at June 30, 2014, provided the Bank has completed its IPO and
the Bank's common shares have been listed on the TSX, to satisfy all
interest obligations of the Corporation's outstanding Series C Notes
either in cash or in-kind in the form of common shares of the Bank held
by the Corporation. It also modified the Series C Note indenture to
make, at the option of the holder, the Series C Notes convertible into
common shares of the Bank held by the Corporation. Effective August 27,
2013, as a result of the completion of the Bank's IPO and the listing
of the Bank's common shares, the Series C Notes were modified. At this
point in time, the Corporation has not determined whether the
modification of the Series C notes constitutes an extinguishment and
reissuance of the debt for accounting purposes. Extinguishment of the
debt could result in $3.5 million of unamortized issue costs and
discounts related to the Series C Notes being written off.

Pacific & Western Bank of Canada (PWBank), a Schedule I chartered bank,
is a branchless financial institution with over $1.4 billion in
assets. PWBank specializes in providing commercial lending services to
selected niche markets and receives its deposits through a diversified
deposit broker network across Canada.

Pacific & Western Credit Corp. shares trade on the TSX under the symbol
PWC.

On behalf of the Board of Directors: David R. Taylor, President &
C.E.O.